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Dear CEO | Release Date: 17th August 2021

To read a shorter summary of this Dear CEO letter, click here.

To access the original FCA document, click here.

Long Summary

This letter updates investment-based crowdfunding (IBCF) firms on the Financial Conduct Authority’s (FCA) ongoing supervisory strategy, highlighting concerns and setting expectations to ensure consumer protection and market stability. This communication reflects adjustments made in response to challenges presented by the COVID-19 pandemic and outlines our focus areas for the coming period.

Update on FCA’s Position and Prior Concerns

In February 2020, the FCA addressed several issues within the IBCF market, emphasising the need for firms to mitigate risks related to speculative and high-risk investments. The primary concern remains that consumers are often unaware of the risks associated with these investments, which may lead to substantial unexpected losses.

Key Risks in the IBCF Market

Inappropriate Investments

Advancements in technology have increased access to investment opportunities, yet a significant number of consumers continue to engage in high-risk investments that do not align with their financial needs or understanding.

Our findings suggest:

Investor Categorisation Issues: Despite restrictions, many investors are inadequately categorised as ‘restricted’, ‘high net worth’, or ‘sophisticated’, often through superficial online processes without proper verification, leading to potential misalignments in risk awareness and investment suitability.

Portfolio Imbalances: Concerns persist that investors may allocate more than 10% of their portfolios to high-risk investments, contrary to their best interests, potentially amplifying financial harm during market downturns.

FCA Expectations for IBCF Firms

Investor Understanding and Risk Awareness: Firms must ensure that investors fully comprehend the risks involved before making investment decisions. This includes thorough categorisation and risk assessment to determine the suitability of investment opportunities for each client.

Due Diligence and Disclosure: Adequate analysis and due diligence must be performed on investment recipients, with transparent communication to investors about the findings. Firms must also manage and disclose any potential conflicts of interest effectively.

Portfolio Management: Firms should take active steps to prevent investors from over-exposing themselves to high-risk investments, ensuring that such investments do not exceed 10% of their investment portfolios.

Scams and Cybersecurity Risks

Investment Scams: There is a heightened risk of fraud associated with crowdfunding platforms. Firms are expected to implement rigorous due diligence processes to prevent scams and ensure the legitimacy of all hosted investments.

Data Security: Robust operational resilience and cybersecurity measures are critical to safeguard client data and prevent cyber-related frauds.

Supervisory Actions and Strategies

Monitoring and Accountability: The FCA will closely monitor firms’ activities, focusing on compliance with marketing restrictions and investment risk management. Senior management, including CEOs, will be held accountable for any regulatory lapses.

Regulatory Enhancements: Consideration is being given to strengthening the rules surrounding the promotion of high-risk investments to better protect consumers. Relevant discussions and proposals can be found in our recent discussion paper (DP 21/1).

Operational Resilience: In line with our guidelines on operational resilience, firms must maintain high standards in managing technological and cybersecurity risks.

Next Steps

Firms are urged to align their operational and strategic practices with the outlined expectations and prepare for potential regulatory enhancements aimed at strengthening investor protections. The FCA will continue to engage with the sector to monitor compliance and intervene where necessary.


The FCA remains committed to ensuring that the investment-based crowdfunding sector operates transparently and safely, minimising risks to consumers and the broader financial market. Firms are expected to take proactive and responsive actions to address any issues identified in this letter and to engage with the FCA to discuss any challenges or uncertainties they may face.

Key Actions for CEOs:

Review and Adjust Investor Categorisation Processes: Ensure processes are robust and prevent inappropriate investor categorisation.

Enhanced Due Diligence Procedures: Strengthen the examination of investment opportunities to protect against scams and ensure transparency.

Strengthen Cybersecurity Measures: Improve data protection practices to safeguard against data breaches and cyber fraud.

Firms should also be prepared to discuss their strategies and compliance practices in upcoming engagements with the FCA. For further guidance or to address urgent strategic issues, firms are encouraged to contact the FCA directly.

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